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Consider a firm with an EBIT of $565,000. The firm finances its assets with $1,150,000...

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Finance

Consider a firm with an EBIT of $565,000. The firm finances its assets with $1,150,000 debt (costing 5.9 percent) and 215,000 shares of stock selling at $14.00 per share. The firm is considering increasing its debt by $900,000, using the proceeds to buy back 90,000 shares of stock. The firm is in the 30 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $565,000.

Calculate the change in the firms EPS from this change in capital structure.

EPS before
EPS after
Difference

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